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Rogoff on the exaggerated death of inflation

I am not arguing that inflation will return anytime soon in safe-haven economies such as the US or Japan. Though US labor markets are tightening, and the new Fed chair has emphatically emphasized the importance of maximum employment, there is still little risk of high inflation in the near future.

Still, over the longer run, there is no guarantee that any central bank will be able to hold the line in the face of adverse shocks such as continuing slow productivity growth, high debt levels, and pressure to reduce inequality through government transfers. The risk would be particularly high in the event of other major shocks – say, a general rise in global real interest rates.

Global inflation rates are far lower today, on average, than they were in the early 1990s. Rogoff credits this to “massive institutional improvements concerning central banks.” But such improvements, he says, aren’t enough to stave off inflationary forces should productivity continue to slow and commodity prices continue to rise like they did in the 1970s.